The Static Theory of Capital Structure Advocates That the Optimal

question 34

Multiple Choice

The static theory of capital structure advocates that the optimal capital structure for a firm:

• A)is dependent on a constant debt-equity ratio over time.
• B)remains fixed over time.
• C)is independent of the firm's tax rate.
• D)is independent of the firm's weighted average cost of capital.
• E)equates the tax savings from an additional dollar of debt to the increased bankruptcy costs related to that additional dollar of debt.

---

Definitions:

Inflation Rate

The rise in the average cost of goods and services within an economy over a specific period, expressed as a percentage.

Present Value

The current valuation of a prospective sum of money or cash flow series, factoring in a designated rate of return.

Investment

The allocation of resources, usually money, into assets with the expectation of generating income or profit in the future.

Entire Wealth

The total value of all assets owned by an individual or entity, minus any debts.